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Graham Cheshire
Ljubljana, 24 11 2010
Review PPP/PPI
D efinition ofProject Finance and comparison
to conventionalfinance
W hat type ofdevelopments are suited to
Project Finance techniques?
W ho are the involved parties?
PPP / PFI
N ationalBudget Savings
European Centraland regionalgovernments,in the
w ake ofthe financialcrisis,lack the funds to finance
large scale capitalinvestments
Conflict ofinterest
The private sector is an attractive alternative to
public sector finance
H ow ever,the necessity for the private sector to
generate profits and the public sector to provide
low cost infrastructure,can lead to conflicts of
interest
Review PPP/PPI
D efinition ofProject Finance and comparison
to conventionalfinance
W hat type ofdevelopments are suited to
Project Finance techniques?
W ho are the involved parties?
Project Finance
Project Finance involves the pure application of
basic principles offinance and credit
M anaging risk and return for allparties
Each dealis unique but follow s the same principles
Lets drilldeeper .
Project Finance operations have common
features
Funding a new economic unit
Via a SpecialPurpose Vehicle company
W ith high proportion ofdebt finance
Severalsponsors
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Funding Sources
Trade finance,export credits,IFIs,
development finance,commercial
debt,leasing mechanisms,bonds,
mezzanine finance,subordinated
debt and equity.
The World Bank
12
ConventionalBank Loans
The bank expects a company acquiring an asset to
be entirely responsible for the loan repayment
regardless ofthe success or failure ofthe acquired
asset
13
Project finance,compared to
traditionalbank lending
H as a reduced
dependance on the
past
Is more concerned
about the future
14
Conventionalloans
15
Project Finance
a typicalscheme ..
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Risk A llocation
Ifrisks are compartmentalised,dealt w ith
individually and covered individually,then
the chance ofone project partys failure
bringing the w hole project dow n is greatly
reduced
18
Risk sharing
Indirect support is provided to financiers by
other parties through severaltypes of
contractualobligations
Equipment supply
Supply contracts
O ff-take contracts
O perating and maintenance
agreements
Specialoperating agreements
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W hy SPVs or PU Cs?
Isolates project from risk ofsponsors failure!
Sponsors not subject to localregulations on
business operations
The project company is managed by a board of
directors and not by a committee ofjoint
venture members independant
Limitation ofpoliticalrisk
21
M arket Influences
Each project w illbe subject to market risks,
supply and demand,economic cycles,political
events
22
Review PPP/PPI
D efinition ofProject Finance and comparison
to conventionalfinance
W hat type ofdevelopments are suited to
Project Finance techniques?
W ho are the involved parties?
23
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Entertainment and
lesiure complexes
Railw ays,M etros
Schools,prisons,
hospitals,university
facilities
26
Review PPP/PPI
D efinition ofProject Finance and comparison
to conventionalfinance
W hat type ofdevelopments are suited to
Project Finance techniques?
W ho are the involved parties?
27
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Involved Parties .
The arranger
The M anager Banks
A gent bank
The engineering bank
The Security Trustee
Guarantor Bank
LT funding provider
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Parties .
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BANKABILITY !
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